Students will calculate the cost that should be assigned to land,
buildings, and equipment and provide the journal entry to record the
acquisition of these assets.
Sam’s Corporation paid $550,000 to acquire land, building, and equipment.
At the time of the acquisition, Sam paid $50,000 to have the property
appraised. The following values were determined from the appraisal:
|
Land |
180,000 |
|
Building |
285,000 |
|
Equipment |
175,000 |
Respond to the following questions:
·
What cost should Sam assign to the land, buildings,
and equipment, respectively?
·
How should the journal entry be recorded on the
corporation’s books to describe this acquisition?
·
Why is it necessary to allocate a lump sum purchase
amount among the individual assets acquired?
·
What are the characteristics that an asset must
have for it to be classified as property, plant, and equipment?
·
Generally accepted accounting principles (GAAP)
requires that property, plant, and equipment should be recorded at historical
cost. What are the advantages of recording property, plant, and equipment at
historical cost?
